Consumer Confidence Up, 1st Time in 5 Months
U.S. consumer confidence has snapped back and the economy, continuing to defy pressures from global turmoil, grew even faster than believed in the third quarter, according to reports released Tuesday.
The latest dose of bullish news promises robust holiday sales and heralds another year of economic growth, said the Conference Board, whose consumer confidence index reversed a four-month decline with its gain in November.
Economists said the stock market’s recovery from its summer woes and the Federal Reserve’s interest rate cuts also buoyed consumers’ mood.
Separately, the Commerce Department’s revised report on gross domestic product for July through September showed the economy expanded at a healthy 3.9% clip, versus an earlier estimate of 3.3%.
But factory orders for big-ticket goods fell 1.7% to $189.490 billion last month. It was the first drop in five months and reflected weaker demand for industrial hardware, railroad equipment, ships and primary metals, Commerce Department figures show.
Despite the economy’s overall vigor, corporations--hurt by competition from struggling countries in Asia and elsewhere--saw their after-tax profits shrink by a steep 1.8% in the quarter, the third straight quarterly decline.
And Asia’s troubles were reflected in another report Tuesday showing a 9% decline in California’s exports in the third quarter, mainly due to a collapse in Asia’s appetite for foreign goods.
“The U.S. economy is dodging bullets from the Asian collapse,” said Allen Sinai, an economist with Primark Decision Economics Inc. in Boston. “It does show some imbalance between the consumption side and the trade and manufacturing side that is unusual and is unhealthy.”
The Commerce Department said the upward revision to third-quarter GDP reflected stronger exports than previously calculated and increased spending by consumers on costly goods such as trucks and used cars. Consumer spending accounts for about two-thirds of the nation’s gross domestic product.
Inflation remained virtually dormant.
“The latest survey findings signal a blockbuster holiday season for most retailers and another year of moderate economic expansion,” said Lynn Franco, associate director of the Consumer Research Center at the Conference Board, a not-for-profit business research organization.
Franco said the confidence declines of the previous four months were driven by global financial shocks.
“Consumers have weathered that storm, and we’re back on track,” she said.
After four straight monthly drops, in which it lost nearly 20 points, the widely followed Conference Board consumer confidence index rose 6.7 points in November to 126.
Especially significant was November’s nearly 11-point jump, to 99.5 points, in the Conference Board’s expectations index, which measures consumers’ outlook for the next six months.
Economists said the stock market’s rise, and the interest rate cuts that prompted the rally, bolstered consumer confidence. With its record-high close Monday, the blue-chip Dow Jones industrial average has risen nearly 2,000 points from its low of 7,539.07 reached Aug. 31.
“The stock market has recovered, so it was likely you’d get an improvement in confidence right along with that,” said William Dudley, managing director and head of economic research at Goldman, Sachs & Co.
Behind the stock market’s rally was the Federal Reserve’s rate cut on Oct. 15, Dudley said. That cut--the second of three by the Fed during the last two months--ignited a market rally that has sent major stock indexes to record levels.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Better--and Worse
Consumer confidence rebounded in November, but durable-goods fell in October.
*
Consumer Confidence (index 1985=100)
November, 1998: 126
*
Durable Goods (new orders) (in billions of dollars)
October, 1998: $189.5 billion
Sources: Conference Board, Commerce Department
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Gross Domestic Product
Percentage change from previous quarter, annualized real rate
1998 3rd quarter: +3.9%
Source: Commerce Department
